Q4 2021 Stem Inc Earnings Call
'twenty one results and highlight some of our key accomplishments last year, then I'll discuss the available power announcement that we made this morning and update you on the also energy closing and integration strategy as we have done each quarter I'll provide an update on supply chain I will then pass it to Lars who will discuss new initiatives.
On the Athena platform and the integration of the power track platform and then finally bill will discuss our financial results in more detail and review, our 2022 guidance and a new metric. We will track this year called contracted annual recurring revenue to help you understand the value of our software contracts.
Turning to slide four today, we reported fourth quarter 2021 revenue of $53 million, which was up 184% versus fourth quarter of 2020, we more than tripled our revenues year over year and at the midpoint of guidance, we expect to more than triple revenues again in 2022.
Two four.
Fourth quarter bookings were $217 million two times higher than our previous record and we more than doubled the full year 2021 bookings plan as we've seen across the renewable industry, we experienced permitting and interconnection constraints due to the omnicom surge, which in our case resulted in three projects.
Moving to a 2022 delivery that impacted our <unk> revenue expectations, but we expect to deliver these projects and have included the revenue associated with these projects in our 2022 guidance.
We completed the acquisition of also energy earlier this month, which is immediately accretive and combines a leading solar monitoring software company with a leading storage optimization company. This is a transformative acquisition for both companies and we will share more details later in the call. We've continued to make excellent progress.
Yes on securing our hardware needs for most of 2022 more importantly, we continue to extend our software lead and have added several new geographies and new verticals to our Athena platform, we have booked over $300 million in contracts during the second half of 2021 and based on our guidance.
The end of 2022, we expect to book over $1 billion in contracts in the course of 18 months.
Based on our current mix of 60 40 hardware to software split that represents over $400 million of long dated high margin software contracts that will generate strong recurring revenues for years to come. We believe this high margin multi year SaaS revenue provides significant operating leverage.
Our business and positioned the company for highly visible profitable growth.
In November we issued a $460 million Green convertible bond, which was three times oversubscribed at a coupon of 50 basis points and was instrumental in the execution of our acquisition of also energy.
Moving to slide five today, we announced an exciting series of projects in Texas with available power a renewable developer we will have exclusive rights to provide storage hardware and software for a portfolio of up to 100 sites in total this could become a one gigawatt two giga.
What our portfolio, which more than doubles, our assets under management from current levels on the storage side, we expect the value of this award to exceed $500 million. We expect the first 20 systems are 180 megawatts of energy storage to be commissioned in early 2023.
Texas was a big driver of our bookings in the fourth quarter and that momentum will continue with the available power deal ERCOT now represents the largest market in our pipeline. We are proving how athene, a bidder maximizes the value of our customers storage assets and this compelling wholesale market <unk>.
<unk> market structure with no capacity market leads to big price swings by design storage is well suited to capture these price signals and Athena enables our customers to participate both in energy and ancillary services markets. Additionally, ERCOT as the leading wind energy market in the U S and one of the.
Fast growing solar markets smart storage and Athena can help firm these resources to match generation with consumption net net it is really about market volatility and storage is ability to manage and mitigate this volatility while providing a return to the asset owner.
Are you available announcement is another example of our continued momentum in large scale front of meter or FTM market and the success of our channel partner strategy developers value our ability to procure fit for purpose hardware at competitive prices to integrate into their portfolio across multiple sites.
And to deliver optimized wholesale market bidding and dispatch with RFP and a better application.
Our sales in ERCOT, followed the same formula that we've used in other markets for storage, we deliver hardware upfront and then sell a long dated software contract that helps our customers optimize their assets for the life of the battery.
We are not taking any merchant commodity exposure, just earning recurring software revenue over the contract period, which is typically 20 years for F. T M.
The available power went further demonstrates our commercial diversity as our customer span multiple geographies customer.
Customer types and use cases, continuing to underscore the reach of our Athena platform.
Let's go to slide six turning to also energy we are pleased to close the transaction at the beginning of February also energy has the industry, leading SaaS platform with their power track software that monitors and controls 33 gigawatts of solar assets in over 50 countries.
They install high value edge controllers, and synthesize data across heterogeneous solar portfolios for a variety of stakeholders, including solar asset owners O&M contractors field service providers and <unk>.
We believe the combination of also energies power track software and stems Athena platform presents a compelling offering as the storage and solar industries converge together, we will be able to drive better economic outcomes for our customers projects and accelerate the energy transition Bob.
Shafer, the cofounder and CEO of also energy has joined my executive staff and we'll continue to lead the also team.
Commercially we're excited about also energy's assets under management customer base and technology. Most of also energy's customers, our commercial and industrial or small to medium sized front of meter customers.
Both of which are core markets for Stim Smart energy storage solutions also energies.
As extremely low storage penetration and the two companies only have a 30% overlap in customer relationships. So we see excellent cross selling opportunities and our sales teams are working together on targeting these opportunities.
Finally from a financial standpoint, Youll recall that the also energy business generates approximately 60% gross margins overall and 80% plus gross margins on software with very low churn. In addition to the strong margin profile they generate a significant amount of recurring revenue from their SaaS.
Contracts.
Please turn to slide seven from an integration standpoint, we started to lay out the groundwork for the combination in January and have now rolled out what we call Tiger teams across the company is to drive integration and cross selling opportunities and alignment.
You can see on the right side of this page the guiding principles. We've established to ensure we are retaining our people driving operational excellence, while focusing on advancing with significant commercial synergies we've identified across the global installed base and pipeline.
I spent most of last week at the also energy headquarters in Boulder, Colorado, where we hosted our first product summit I am really excited about the collective talent opportunities and roadmap. We are building together and the team's commitment to further extend our software leadership platforms.
I believe it's critical to have a single point of leadership on any integration effort. Thus we have hired a dedicated vice president of integration to ensure alignment golar execution and a seamless integration process, we expect to see incremental bookings and backlog growth as we bring the organizations together and execute on.
Our growth initiatives.
We will leverage the strength of our combined software offerings to add value for our customers and customer centricity as a shared core value for both companies.
She will spend some time on the software strategy. Shortly ultimately our goal is to have every solar system, Athena ready and every storage system power track ready.
Please turn to slide eight before I turn it over to Lars Let me update you all on our supply chain status. We're pleased to announce we have contracted storage supply well into the fourth quarter of 2022 and expect to finalize our supply agreements by the end of the first quarter, we're confident that our hardware supply will be fully.
<unk> for 2022 and in the process of matching the best solutions for our contracted backlog at this time, our supply chain focus continues to be lowest cost highest quality and guaranteed supply. We believe this is differentiated and our customers repeat business is a strong indicator of stem <unk>.
A trusted supplier that maximizes value for our customers.
Outside of the supply chain, we have seen other constraints to system delivery and deployment as we discussed in prior quarters in particular permitting and interconnection issues have slowed the deployment of systems. In fact, three projects contributed to the variance from our expected revenue in the fourth quarter of 2021.
These projects are now expected to be delivered in the early part of this year.
I want to emphasize that these are delays and not cancellations and remain in the contracted backlog. We have observed project delays across our peers in the renewable industry. Although we continue to see accelerating demand for our solutions as reflected in our forward expectations of bookings momentum we have.
Also seen commodity price inflation pressure.
Battery supply agreements and in many cases, we are seeing indexed pricing from Oems.
We're working closely with our suppliers and customers to ensure the project economics still work in this new pricing environment.
We will stay disciplined in our margin requirements and we will not be riding negative gross margin contracts as we've seen from some of our competitors.
Lithium carbonate has been a focus for this new indexed pricing you can see from the graph on the right that <unk>.
<unk> prices for lithium carbonate to decrease in the coming quarters and longer term <unk>.
Analysts similarly forecast declines in key metal inputs, such as nickel and cobalt.
Which gives us confidence in the long term downward trajectory for battery prices. We believe this should continue to improve the economics for storage in new geographies and support our commercial momentum.
Finally, I want to thank our team customers and channel partners for another strong quarter and a strong year with revenue up three X year over year.
In addition to the also energy employees, we've hired over 100 people in the last year. This is exceptional talent across the organization with deep domain expertise and relevant functions. We remain focused on diversity equity and inclusion for our candidates and our employees, which is enhanced is.
We now have a worldwide footprint with employees on three continents. As a result of the also energy acquisition.
Energized by the purpose driven organization, we have built and the substantial competitive position with over 34 Gigawatts of global assets and an unrivaled data advantage and our best in class AI software platform.
We have numerous accomplishments to be proud of in 2021 and confident our talented employees will bring us even more success in 2022 with that let me turn the call over to large Johnson, our Chief Technology Officer, and I will come back with some closing comments.
Thanks, John on Slide nine we provide an overview of how we will converge the segment technology roadmap to the Athena and the also energy power track platform to grow our customer base and extend our joint capabilities.
Today, these market leading offerings support API based integration delivering value to our mutual customers, who own hybrid solar plus storage sites.
In the near term, we are focusing on enhancing the user experience and streamlining project time to value with integrated user management consolidated edge equipment and data integration to deliver our customers a single pane of glass that enriches their combined solar and storage portfolio management.
As we execute this roadmap over the next couple of years Athena will emerge as a common platform hosting an ecosystem of applications across vertical asset classes and markets building on the world's largest repository of clean energy operations data acquired from a decade of experience across over 41000 sites.
We believe it would be difficult if not impossible to replicate the accumulated AI training data at <unk>.
<unk>, our machine learning and software operations, covering a combined 34 gigawatts of solar and storage assets.
Our shared vision is to empower clean energy asset owners and operators to scale their businesses by leveraging AI automated data driven operations enabled by Athena.
On slide 10, I want to highlight another example of a vertical offering that is extending the Athena platform into the fleet electric vehicle management space.
In December we announced the partnership with Engie, which involves deep integration of Athena software with their fleet electric vehicle charging infrastructure.
As announcement builds on work, we've been doing with partners and customers such as Penske Amazon in EPS, which is opening an additional $4 billion of addressable market for Athena solutions in the E mobility sector.
Our software offerings will enable superior energy cost and resiliency management building on Athena is integration with fleet charging operations.
Integrating the storage dispatch capabilities of Athena will seamlessly avoid peak utility charges, while providing detailed data for corporate customers, who score there <unk> impact of their fleet electrification.
From a financial perspective. This is additional software as a service application.
Additional fee, which is increasing our share of wallet and expanding the distributed energy resources, we will leverage for future upside market participation revenues.
And with that I will hand, it over to bill to wrap up the financial section.
Thanks Lars.
First I will review the results of the fourth quarter and the full year 2021, and then I will discuss our new metric we are calling called contracted annual recurring revenue or car Lastly, I'll review, our 2022 financial guidance.
Starting with our financial results on Slide 11, which does not include the financial results of also energy, we recognize a record $53 million of revenue in the fourth quarter.
Was up 184% versus the same quarter last year. The vast majority of the revenue of the growth came from hardware sales on STM and ATM partner projects with additional software and service revenue from our operating fleet.
As John mentioned, some of our partners and customers experienced interconnection and permitting delays negatively impacted our revenue in the fourth quarter. Importantly, these are not project cancellations and we expect to realize the revenue in the coming quarters. While we have so far successfully managed the supply chain and logistics challenges Omicron Serge.
<unk> project progress at several sites due to the unavailability of labor in particular for permitting and interconnection approvals our operations teams use their experience and relationships in these markets to help partners advance their project timelines and we see improvement as utilities and permitting agencies returned to more normal operations in this quarter.
Our GAAP gross margin was negative $1 6 million or negative 3% versus $9 million or 5% in the same quarter last year non-GAAP gross margin was $3 $3 million up from $2 5 million in the fourth quarter last year due to higher revenues on a percentage basis non-GAAP gross margin was six <unk>.
<unk> in the quarter versus 13% last year, our margins were negatively impacted by a mix shift due to project delays in the fourth quarter, but there was also impact from hardware gross margin specifically in the FTM segment.
However, we expect these issues to subside as we move through the year, we drive more high margin service revenue and Youll see in our guidance. We expect total gross margin to be in the 15% to 20% range for 2020 to collecting the growing share of revenue from software and services net loss was $34 million versus a loss of $101 million in the same quarter last.
Last year that swings almost completely the result of large noncash charge in the fourth quarter of 2020 from the warrants issued as part of the convertible note financings.
From 2019 and 2020, we retired substantially all of those warrants in April 2021, and we do not expect significant charges like that in the future.
And lastly, adjusted EBITDA was a negative $12 $4 million versus a negative $5 1 million in the same quarter last year.
<unk> EBITDA fell because of higher operating costs from additional hiring personnel related expenses.
Costs associated with public reporting and related expenses as we continued to build out our teams and advance our technology road map and take advantage of market opportunities.
Moving from our financial results to our operating metrics on slide 12, our pipeline more than doubled year over year from $1 6 billion at the end of $2020 to $4 billion at the end of 2021 and grew 67% just between the third and fourth quarters of 2021, our business development teams continue to develop multiple new markets.
And customers and deepen relationships with existing.
Our contracted backlog grew counter seasonally to $449 million.
Up 44% from $312 million at the end of the third quarter and more than double the backlog at the end of last year.
Biggest driver of the backlog increase was at $217 million bookings in the quarter offset by revenue recognized during the quarter as well as some project cancellations and amendments primarily driven by the early termination of a program and nice survey.
It's important to recognize this cancellation is a relatively unusual result, as cancellations have not been frequent or substantial our history. We do not expect them to become so in the future. Our sales team again set a new quarterly bookings record, which is 58% more than was reported in all of 2020, a testament to our leading.
Software and hardware solution. This backlog gives us excellent visibility into our expected 2022 revenues long term software revenue is the backbone of the backlog and represents approximately 40% of the total booking and importantly does not include the impact of market participation.
Bookings represent the foundation for predictable high margin service revenue.
Our contracted AUM grew from one gigawatt at the end of 2020 to one six gigawatts at the end of 2021, 60% and.
And sequentially grew almost 14% again, driven by our strong bookings momentum.
We ended the year with $921 million in cash on the balance sheet before the cash payment associated with the also energy transaction.
Finance, the $695 million purchase price with 75% cash and 25% stock.
Next I wanted to spend a few minutes talking about the new software metric, which we think will showcase the importance of the network and services that we offer our customers to drive long term value. Please turn to slide 13.
Starting with the stem energy storage business, our software drives exceptional economics for our customers automate everything, including reducing costs, increasing revenues complying with regulatory incentives and constraints and minimizing greenhouse gas emissions, our broad market reach and scope allows us to co optimize multiple value streams in real time.
Over time to maximize economic value for our customers.
We also provide exceptional customer support for the lifetime of the renewable asset from development monitoring and control performance reporting and troubleshooting as these markets evolve we can rollout additional services to enhance our customers' economics for additional fee.
Also energy brings the same expanding revenue opportunity and value add the solar side of the business, which is why they have been so successful in growing their market share and recurring software revenues over time.
While we entered 10 to 20 year contracts for stem energy storage optimization services. The real value comes from the historically low churn across the Athena and powertrain platforms, which is in the low single digits. Today, we are introducing a new metric contracted annual recurring revenues or car, which captures that day.
<unk> represents the annualized contracted software and services revenue at a point in time and car will grow as we signed additional software contracts generate 80% plus gross margins on software for both.
Tina empower track and we expect those margins to continue as we add more assets.
You mentioned in our third quarter call that our mix has started to shift between software and hardware and the value of our contracts on the storage side.
From 70% hardware and 30% software a couple of years ago to 60 40 hardware.
Software split currently.
Driver for margin improvement as the incremental fees that we were able to charge for software and the additional value added services that we're bringing customers power markets are becoming more complex our customers need us to optimize additional value streams.
The charge higher fees for those services. Similarly also energy has been able to increase its annual fee as it becomes more embedded with its customers lastly, remember that our storage contracts and causes where we can earn additional market participation of grid services revenue as opportunities arise. This is pure upside optionality for us we have assumed.
The middle of that market participation in our revenue guidance as market conditions have continued to favor distributed assets, we could see meaningful upside to our numbers for example in Massachusetts, we are already outperforming our initial expectations by 16%.
Key message here is that we believe this high margin multi year SaaS revenue provides significant operating leverage to our business positions the company for highly visible profitable growth.
Lastly, I will discuss our guidance turning to slide 14.
First we are introducing 2022 revenue guidance of $350 million to $425 million all of our guidance reflects 11 months of also energy operations as we closed that transaction on.
February one.
At the midpoint of the range is at 200% increase in revenue year over year.
As John mentioned, we have had tremendous commercial momentum, which drove significantly higher bookings and we expected in 2021, we expect that much of that hardware component of the bookings will translate to revenue in 2022 and the software thereafter.
Second we are introducing a new guidance metric bookings, which we have historically reported on but not guided on we expect to contract between $650 to $750 million in bookings this year, representing another significant 50 plus percent growth year over year at the midpoint that translates to approximately $325 million.
Long term service contracts, all carrying 80% plus gross margins.
Bookings and backlog are key leading indicators of revenue and if we are able to meet our bookings goals for next year will set us up well for 2023 revenue and builds on a substantial base of long term recurring SaaS revenue.
Third we are introducing adjusted EBITDA guidance of between negative <unk> negative $60 million, we expect to generate strong gross margins in the 15% to 20% range in 2022, but we are seeing some cost inflation impacting our storage hardware margins.
Importantly, we are investing in our growth through expanded software our offerings in markets, which is reflected in the more than $1 billion in bookings over the period July 21 December 'twenty two.
While we are currently looking to improve our operational efficiency and margins. We believe our long term margin profile of the company will reflect the accretive effects of our long dated and low churn software contracts. We will also continue to invest for growth in the business.
So youll see our operating costs increase this year as we open up new markets and add new features to the Athena and powertrain platforms. These large detailed earlier.
We are also introducing seasonality guidance for revenue and bookings similar to previous years, we expect approximately 75% of the revenue in the back half of the year, we expect a flatter bookings trajectory across this year as compared to last.
And lastly, we are introducing guidance for our new metric car, where we expect to exit 2022 at a run rate between 60% and $80 million that represents a minimum 200% increase year over year and 80 plus percent high margin service contracts for modeling purposes, you should assume some lag between car in the actual revenue recognition on the P&L.
Because of the timing between contract signing and system commissioning when the software goes live we think car along with our low churn is a good indicator of long term strength and operating leverage of the business.
Let me turn the call back to John for some closing remarks.
Thanks, Bill wrapping up here on slide 15, and our key takeaways are significant momentum on bookings and Athena expansion will drive momentum in 2022, and expect continued strong growth as we saw in 2021.
We will maintain our focus of delivering high value software and services to our customers, which will drive higher margins and higher mix of software revenues. We will continue to build a substantial contracted backlog with an expectation of over $1 billion in bookings across 2021 and 2022.
Over the years, we have invested purposefully and our software our people and extending our leadership position.
Allocate capital in 2022 to extend that leadership with the addition of also energy we have built the leading clean energy intelligence platform across over 34, Gigawatts in 50 countries and you will see us monetize the value of the platform as we offer the most tested most comprehensive.
<unk> in the industry.
We will continue to add features and functionality to Athena as we enter new markets in the U S and internationally.
And as we move into new verticals like EV charging and ghd optimization, but we will also remain prudent on our capital allocation to generate the highest return on investment.
As we scale up our revenue mix will shift from hardware to software, which will increase our margins and cash flows bottom line. We expect strong operating leverage as we amortize our fixed cost over a growing revenue stream of long term high margin SaaS revenue, we are focused on tracking our progress.
On this front through reporting on the contracted annual recurring revenue metric that bill outlined we are very bullish on the growth of this industry and our competitive positioning and we will execute in 2022 to deliver on our commitments 2022 will be another exceptional year and set up our growth trajectory.
Directory for 2023 and beyond with that let's open the line for questions. Please.
We will now begin the question and answer session.
And the question queue you May Press Star then one on your telephone keypad.
Here at tone acknowledging your request.
Using a speakerphone please pick up your handset before pressing any teeth to.
Withdraw your question. Please press Star then two we have a.
Pause for a moment of color to join the queue.
The first question comes from Brian Lee with Goldman Sachs.
Please go ahead.
Okay.
Hey, guys. Good afternoon, thanks for taking the questions kudos on the nice bookings and revenue outlook here.
Sure.
I wanted to ask the first question I guess on the margins here.
Maybe if you could give us a bit more bridge I think you said also energy is doing 60% gross margin overall so at.
At the midpoint of guidance it implies they're about half your gross profit dollars for 2022 and that means core stem is doing maybe about 10% gross margin.
I think you guys originally had a target to do like mid <unk> in 2022, So and you would also 10% to 20% throughout all of 'twenty. One before <unk> can you just I am trying to reconcile the sharp drop off here I know you mentioned a number of different moving parts, but can you maybe help.
Bridge, a bit and maybe quantify if you can kind of where where we were targeting before for core stem and kind of where we're ending up here with.
If my math, the math is right it implies kind of a 10% margin.
Yes, Thanks, Brian good to have you on the call I. Appreciate the question I'd say first and I'll turn it over to bill, but we're really provide not providing consolidated.
Separated guidance, it's all consolidated and we don't want to break it out for each company's performance, but bill if you want to address some of those points. We can maybe tackle a few of those items are behind us.
Yes, so thanks, John Brian I. Appreciate the question. So I think as John said I think the.
In the future, we won't be breaking out the two divisions of the company that way, but I mean, I think the basic math is pretty pretty correct.
I think the.
The issue that we're focused on is the continued bookings of the company and the focus there is making sure that the software is what's driving the long term value of the company. So it's possible that we will see lower margins in the near term, but ultimately and that's why we rolled out the car <unk>.
I mean I think.
<unk>.
We have concerted pretty consistently in the past that we think backlog is a great short to medium term reflection of what the revenues will be car is going to be a great reflection of what software is going to be.
As we mature and so I think.
What we're thinking about is the growth in the car. So it's going to be depending on you take the midpoint. It's about three five times growth from what we experienced in 2021, that's what's really going to lay the foundation for long term in terms of really positive gross margins. So I think thats the way that we think about it more than anything to the extent that we're going to invest.
In the near term to get those sales and so I'll remind you that we did more than <unk>. The bookings in 'twenty, one as what was potentially even thought of and again, we're talking about another 50% year and we've got projects like the available power deal that we talked about today, that's going to be worth almost by or should exceed $500 million in bookings.
So it's really kind of setting ourselves up for not just this year, but.
'twenty three and beyond.
Okay. That's fair enough I know you guys.
Have a mix shift story here medium to longer term as more.
Software Athena gets embedded at these higher margins, you're obviously going to see some margin expansion, but just in the near term there is still going to be a relatively high hardware mix and.
I think you guys had talked about a 10% to 30% hardware gross margin I mean, if youre doing Ken.
Is there something here to suggest that maybe we should structurally be thinking about a lower hardware gross margin and eventually you see the mix shift help you get.
Consolidated margins up, but youre not going to see the sort of 10% to 30% gross margins on hardware anymore. Just trying to figure out. If this is a temporary supply chain logistics issue or if this is maybe more structural on the hardware side.
No I guess I'm not sure I would use the word structural but I mean, I think we have consistently said that the larger fkm projects carry a lower gross margin.
When you think about those larger developers.
Versus the say the quote unquote smaller ones.
The primary differences integration and the integration being.
Does that company have a supply chain relationship our procurement department makes sense that they have that and youre doing deals that.
Kind of come into the multi 100 millions of dollars gigawatt size range. They tend to have relationships, which means that some of the value added services that we would normally bring to say maybe a BPM project just isn't required. So as a result of that youre going to see lower gross margins on the hardware. That's just what it is however, more important thing.
Youre still signing a software contract, which is super high gross margin contract, which is going to layer in over a long period of time and so I think irrespective of what the hardware margin is I think one of the things that we really thought about in which frankly drove the decision to acquire <unk> energy.
Was the gross margin profile on the software and services. So thats really where were focused long term I mean to the extent that the hardware suffers in the near term.
And that's we think that's a great trade off for 10 to 20 year contract with Super low churn.
So it even goes beyond that so that's really kind of always thought that way.
Starting to do more software only deals as well wishes.
Which is kind of along that same path and so we think that the.
Software continues to differentiate itself from other competitors in the marketplace, and I think thats, really where and where we're going to be.
Yes, I think in the open okay I appreciate that accomplishment.
As Bill mentioned, Brian I think it's important to so under script that the $1 billion of bookings does represent $400 million of software total contracted value. So there is just exciting leveraged around the hardware piece, even affect gross margin is somewhat minimal.
And as Bill mentioned.
We are focused or we've actually modeled.
<unk>.
The decline in margins around the hardware piece and much more of a software lift which we continue to see.
Yes makes sense I know the medium to long term path is there and you guys have laid it out I just I do want to be cognizant that in this market take the near term.
Actively speaking does matter a lot to investors. So just wanted to be.
Cognizant of kind of how the path forward is on the overall margin profile, maybe just switching gears and then I'll pass it on.
The available power deal it sounds like a great win for you guys I just wanted to dig in and understand the dynamics.
To make sure we're on the same page the $500 million.
Opportunity that is just for stem or does that include what.
AP would also be.
Potentially earning from this just wanting to know whats your split versus their split and then if we assume the 180 megawatts of the one gigawatt opportunity.
Early 2023 commissioning I suppose that means it's $90 million of revenue do you see all of that in 2023 and is it all all software or is there some hardware embedded in that 500 million sorry, I know, there's a lot going on in that question.
So I'll take a run at it Brian .
The number that you mentioned the 500 plus as Tim.
From a perspective of how we're thinking about this.
On the bookings line assumed in 2022, approximately a $100 million.
We're we're trying to unpack a little bit how quickly we can get this executed we would expect the majority of it to be a 2023.
Think the best answer is as we proceed to start to get more clarity on the planned tranches, we'll obviously update you and everyone on how that's coming together what I do like about it is the ERCOT market tends to be.
A little bit higher throughput than some other markets related to installation. So we've talked about permanent interconnection issues, that's probably the highest velocity market. We're in which is great because it's our largest pipeline market as well as kind of as we've talked about even last quarter or so.
There's a lot of value, we can bring with our solution coupled with probably.
Quicker velocity higher velocity on installations.
Alright, Thanks, guys I appreciate it.
Thank you Brian .
The next question comes from Matthew <unk> with Credit Suisse.
Please go ahead.
Hey, Hi, good evening, thanks for taking the question.
Im not putting as well.
Maybe just one on.
2022 revenue guidance up again, but just wanted to understand how much.
The revenue.
Revenue guidance is from also energy I know you guys talked about like $53 million plus.
Run rate last year, and entering 2025 does not change year over year does that kind of a.
Framework to think about that split between core stem and also energy.
I'm, sorry, you broke up there a little bit towards the end could you say that again.
Yes.
Wanted to.
On the brake.
Also energy revenues.
Stem revenues for.
Just looking at the guidance you guys gave.
During the Olson acquisition.
$52 million in revenues right in 2021 and growing off that base.
Should we assume like somewhere around 6500 $70 million of revenues from also energy.
Thats about right.
I think thats certainly in the ballpark.
Got you thanks for the clarification and it.
There will be just going back to say.
Just to clear that up so youll see within accused in the case, there will be some segment reporting around that too so youll be able to track that going forward on the revenue line item.
Got it.
It looks like the majority of Thats factoring revenue guidance that you're giving us.
Also energy probably around $15 million to $20 million.
Software services business.
In terms of the car projections, you mean or something else.
Yes.
Yes, it does.
I wouldn't I wouldn't characterize yes, I wouldn't characterize it that way I mean, so we're guiding to $60 million to $80 million exit rate in 2022, I think a lot of that is going to come from the stem side of the house or what we would describe as the older.
So the we.
We loved the also a business, it's not growing quite as quick as.
I'd say the storage side of the business, so still very profitable accretive like we've always talked about but not likely going to see the kind of growth that you'll see and that's really driven by the front of the meter side of the of the storage business. I mean, that's really what is the fastest growing piece I mean.
Think.
Neither the behind the meter segment on the storage side, nor the solar plus storage with solar side is going to youre going to see $500 million deals <unk> signed so that you think about signing a couple more of those in the growth numbers kind of change pretty dramatically.
Okay.
Got you.
That makes sense and then the other question just on the guidance yet for revenues.
Can you just talk about like what drives the lower end and higher end of that range.
Is it like some specific customer projects youre waiting on or any any color on that would be helpful.
Yes.
I believe I did.
Yeah.
Got it sorry, John go ahead, but we're really building to building a margin of safety I think kind of given the global macro environment, but I would highlight the fact that.
Even at the midpoint, that's three X growth year over year, but Bill go ahead jump in.
Yes, I was going to say that we have as you know we have pretty good visibility to projects and so theres a number of big projects just like this year, there's a number of big projects that we're looking at having a PTO for for 2022.
So we took a.
A conservative view as to what we thought could happen. We of course, there's a lot of question marks around the supply chain just generally.
And we'll see how that rolls out, but we will definitely continue to update you guys over time.
As the year goes on I mean, as we sign other large deals like the one we announced today those are going to have kind of talked about the lumpiness of the business and those sorts of deals is as nice as they are I mean, as John mentioned, it's $200 million of long dated software contracts that hardware piece, I mean that $300 million in hardware.
Got it.
Naturally drives some lumpy results within the business. So we'll keep a close eye on that and keep you updated.
Gotcha.
Last one from me.
I'll jump back in the queue.
EBITDA margin.
Just wanted to understand like when.
Should we expect.
Does that breakeven and back to that.
Kind of a target rich.
You guys had laid out previously.
Three.
Just on some of that.
Seeing some of the operating expenses increased because of expansion, but when do you expect to kind of what you've done on that.
Expansion investments.
Bill do you want to take that.
Sure. So I think I think it is important to note that the EBIT.
EBITDA and obviously the Opex investments.
Really generating some pretty interesting results. So if we wanted to solve for a EBITDA number we could pare back.
The opex.
You can see that like right I mean, we're guiding.
You're kind of on a combined basis opex is going to be around $100 million. This year in 2022, and we're guiding to a minus 20% minus 60 EBIT. So if we were trying to solve for EBITDA, we could pare that back and have a positive number but I think what what that Wouldnt do though is <unk>.
<unk> for those types of contracts.
Like we announced today and Thats really so when you see the growth in the business. This year that came from investments in new markets and that has none touchstones throughout the business their salespeople. There's data science there is understanding the market structure. There. So there is a lot of work that goes into those sorts of things and so its death.
Only a little bit more complicated.
Then when you might expect and so as a result.
We kind of feel like Hey, there is that there is an interesting market opportunity ahead of us and a number of markets some of which we've talked about Texas a little bit.
And I think that's really where we're going to continue to invest.
Being able to generate those long dated service contracts I mean when you.
John mentioned.
The bookings trajectory 2 billion or $1 billion over 18 months starting in July of 2021 through the end of next year, that's $400 million of tougher contracts and so that but that comes with an investment to be able to get to that.
And that's really where we think to the X.
Stent that we have to invest in this near term that's going to pay off in the loan.
Should we expect similar opex generated in 2000 and <unk>.
Similar in terms of the growth from 'twenty, one 'twenty two or.
Alright.
We did a $100 million all of that in growth from Deutsche Bank.
Either way.
I think we.
We would expect so because most of our Opex is head count related so it's not we're not.
Doing non personnel related investment really on the Opex line.
Got you.
Alright.
Thanks, John .
No.
Yes, I think what you will have in 'twenty <unk> two is a much larger base of car.
As a result of those investments.
Right, some operating leverage kicking in Frankfurt.
That's exactly what we're thinking.
The next question comes from <unk> parents, Sheryl with Susquehanna.
Please go ahead.
Hi, good afternoon. Thanks for taking my question, maybe one more on the on the margin side.
I understand at least to some extent the hardware business.
It means to them or are you just really growing the software business.
Okay.
Can you talk a little bit more about.
On the hardware side.
What is your margin crush Cogs.
And also.
Alright.
Environment, how much of the <unk>.
Input costs on the hardware side are you able to pass along to the customers.
Yes, and thanks for the call because youre going to hear from you I would say a couple of things on the supply chain piece.
Number one we have seen some softening around the shipping costs are moderating as.
As we've talked about in the last call.
Over oversee kind of freight fees, we were able to pass those on I think what we're seeing now is some index pricing.
Ideas that we outlined in the <unk>.
Opening remarks and.
We're working through that with our suppliers primarily focused on lithium carbonate.
That represents a little over half of the build so obviously that's why they are focused on that.
So we'll have to kind of play through as far as these projects continue to pencil does the.
DSS supplier opt to pass on the volume.
And we've kind of got a standing.
<unk> from our suppliers that have projects fall away to give us a call because we think that our momentum in bookings and.
Everything else, we've been talking about today will continue so being long hardware may be a good spot to be but again, we feel very good about where we are today. We are confident we will get.
Our total 2022 supply contracted and.
As these.
Commodity index pricing come forward, we will we will see how it plays out I mean the chart in the deck that we put together.
Feels like from kind of today to 2000 22025.
Peak to trough of down 65% as an example on that lithium carbonate side. So therefore casting some reduction in raws and I think thats.
Accurate and we believe that helps us to open up more markets.
Potentially drives higher hardware margins, but I think as bill has outlined pretty clearly all during the call. Our focus is really on driving more and more software.
Recurring revenue and high gross margin.
Okay. That's helpful.
Okay.
Anthony you can save.
It is the limit.
The margin thresholds you have.
<unk>.
On the hardware side for new business.
I mean, we really we have a pretty thorough process issue that we go through on any large deals our sales team has a threshold.
If it goes below that they've got to come to me and Bill and then we decided we wanted to do.
So we haven't really outlined that publicly but.
Rest assured our interest is not to take negative margin deals as we've seen from some of the competition out there and that's not a focus for us.
But.
I would also say that it's a very tight process that goes on on a weekly basis.
As needed if it's if it's more than weekly so we're all over it much like we were on the hardware piece.
And assuring our 22021 supply and as we feel like in 2022, Bill you have anything else to add on that front, but.
Yes, I think I think one of the things that's important to note is we are more ever more leaning towards the <unk> side of the house.
Talked about 80 20.
That number is getting higher on the <unk> side and.
If you go back to the guidance of gosh, almost two years ago now you talked about margins in the 10% to 30% range more closer to 10 on the FTM side and Thats kind of what we're seeing so.
That.
Though it is elongated plan, we're still kind of operating somewhat close to it.
Other than the kind of the mix percentages.
Talked about that we're leaning more heavily towards FTM I don't think we could've predicted way back then that Texas would become the market that it has.
Good news is that we are there in force and we're happy to be so.
I think the I think on the BPM side still growing bid margins, but definitely maybe more impacted by the pandemic because that tends to be more on the fortune 500 side of the house.
Got it.
The good news is.
SDM.
FTM mix.
Youre still getting the software business.
And margins, whether its SDN market.
Exactly I mean, ultimately I think as we've always said and I think most have agreed this is the software story.
Not a sale of somebody else's hardware story.
It's really.
What the differentiating component of stem is the Athena platform.
That's always been true and I think that's going to continue to be true in the future.
That's very helpful. Thank you.
Okay.
Okay.
This is all the time that we have for questions today I would like to turn the conference back over to John Carrington for any closing remarks.
Thank you Shari and thank you all for joining.
Some of our <unk>.
Fourth quarter and full year 2021 earnings call. We are very pleased with the strong execution in the fourth quarter and our full year 2021, and the momentum that we've carried into 2022. So we look forward to speaking with you during our first quarter earnings call and again. Thank you all for joining.
This concludes today's conference call you may disconnect your lines.
Thank you for participating and have a pleasant day.